Indonesia: The Political Economy of Energy.

• Author: Correlje, Aad

The back cover of Barnes' book informs us that it examines the potential for development of Indonesia's energy resources. There is no introductory chapter. The central theme of the book is that Indonesia is confronted with an increasing tension between the need to export oil - to secure its foreign currency inflow - and the country's rapidly growing energy consumption. With current rates of growth (8% yearly), oil consumption should surpass oil production somewhere between 2000 and 2010. Fundamental issues in delaying this are, firstly, encouraging the exploration and production of new oil reserves and sustaining the life of currently productive fields; secondly, the substitution of other sources of energy for oil in Indonesia; and, thirdly, an expansion of the export of coal and natural gas.

In seven chapters, Barnes sketches past developments in the relevant sectors and estimates the feasibility of expanding the current levels of production, based on his own work for the World Bank and other studies. To this end, he considers the political and economic context of Indonesia's energy resources; the development of oil production; the domestic energy scene; natural gas; other alternatives to oil; the organization of the energy industry and of Pertamina, the state oil and gas industry, and the relationship with OPEC. He concludes with a chapter on Indonesia's future position as a producer, as a consumer, and as an exporter of energy.

A paramount conclusion regarding the expansion of the production of oil, gas and coal is that foreign investment is badly needed in all sectors. Yet, the attitude of the Indonesian state and its oil policy seem to frighten potential investors away. Barnes shows in detail that this is not a new phenomenon. Over the post-war period, Indonesia has not succeeded in attracting substantial foreign investments for operations in new areas - not to mention domestic finance. Indeed, the bulk of production (45%) still comes from the Minas and Duri fields, operated by the long established Caltex Pacific. The message is that, if the Indonesian government wishes to attract sufficient foreign investments for the further development of its oil and gas industry, it must secure the international business' perception of Indonesia as a stable country with a sound and expanding economy.

The book, according to its title, promises an analysis in political economy. Therefore, we would like to have been introduced to, first, the author's...